Question #59 - Reading 42.3 Standards of Professional Conduct Guidance for Standards III

Reading: Reading 42.3 Standards of Professional Conduct Guidance for Standards III

PDF File: Reading 42.3 Standards of Professional Conduct Guidance for Standards III.pdf

Page: 25

Status: Incorrect

Correct Answer: B

Your Answer: C

Shared Context

- After changing her recommendation on Aggregate, Sanders: A) violated Standard VI(B): Priority of Transactions by trading Aggregate from her own account. B) violated Standard II(A): Material Nonpublic Information by taking investment action based on information not accessible to the public. C) did not violate Standard II(A): Material Nonpublic Information because the information was disclosed to a select group of analysts.

Question

In selling his fund's stake in Aggregate, Martinez:

Answer Choices:

A. violated Standard III(A): Loyalty, Prudence, and Care by using information obtained from Watkins

B. violated no standards

C. violated Standard II(A): Material Nonpublic Information by using information obtained from Watkins

Explanation

Martinez was aware of how Watkins obtained the information; therefore, Martinez violated II(A) by trading on material nonpublic information. Martinez has no fiduciary duty to Watkins, and as such did not violate Standard III(A). It would be difficult to argue that Cho's thorough research is not sufficient reason to trade Aggregate stock, so Martinez did not violate Standard V(A).

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